Economics of Managerial Decision Making

Economics of Managerial Decision
Making

Question 1.......................................................................................................................... 1
a)..................................................................................................................................... 1
(i). To determine equilibrium quantity and equilibrium price in this market:.................1
(ii). Impact of price ceiling on gym supply.....................................................................2
(iii). Impact of price ceiling on gym supply....................................................................2
b...................................................................................................................................... 2
(i). Impact of price reducing for monthly membership price on equilibrium demand and
supply............................................................................................................................. 2
(ii). If providing 50% off on gym membership in summer.............................................3
(iii). Impact of competitors’ price...................................................................................3
Question 2.......................................................................................................................... 5
a. Determine the Price Elasticity of Demand (PED).......................................................5
b. Cross price electivity..................................................................................................5
c. Three ways of price discriminations...........................................................................5
Question 3.......................................................................................................................... 7
a. Explain how Ace Body gym can benefit from economies of scope............................7
b. Ways to get benefit from technical and financial economies of scale.........................7
c. Calculate marginal cost and marginal revenue for Ace Body Gym............................8
Questions 4........................................................................................................................ 9
1. Payback Period...........................................................................................................9
2. Analyse the extent market in which Ace Body Gym operated..................................10
3. Measurements that government consider to regulate................................................10
Question 5........................................................................................................................ 11
1. Market structure of selected organization.................................................................11
2. Explain the barriers for the entry or exit of selected firm.........................................11
Question 6........................................................................................................................ 12

1. Decision tree as Ace Body is first mover..................................................................12
2. Outcomes of best payoff, if Ace Body is the first mover..........................................12
3. Evaluate how result change if Next Gen is the first mover.......................................12
4. Evaluate that, is first mover or second mover is beneficial.......................................12
5. Usefulness of game theory........................................................................................12
REFERENCES................................................................................................................14

Question 1
a)
(i). To determine equilibrium quantity and equilibrium price in this market:
Solution: Given that –
At Price £0 the demanded quantity is 80, while at £80, demanded quantity is 0. Similarly,
at Price £10 the supplied quantity is 0 and at £100, supplied quantity is 90.
1